Overcharged health costs are an American epidemic

Monday

Mar 25, 2013 at 12:01 AM

Anyone who has read a hospital bill knows how indecipherable they can be, with charges seemingly inflated beyond belief. I once tried getting an answer from officials at Bayfront Medical Center about why they billed a breast biopsy at more than $12,000, not including fees charged by the radiologist and lab. All I got were vague answers, and no one would break down the cost.

Robyn Blumner

Anyone who has read a hospital bill knows how indecipherable they can be, with charges seemingly inflated beyond belief. I once tried getting an answer from officials at Bayfront Medical Center about why they billed a breast biopsy at more than $12,000, not including fees charged by the radiologist and lab. All I got were vague answers, and no one would break down the cost.

Then comes along Steven Brill's special report on medical billing for Time magazine that laid bare the truth: Defense contractors selling $600 toilet seats to the Pentagon have nothing on the extortionist billing practices of America's hospitals.

Brill's excellent 25,000-word expose, "Bitter Pill: Why Medical Bills Are Killing Us," sheds light on this opaque world where even nonprofit hospitals, with their tax exemptions and do-gooder images, are profit-generating machines that mercilessly squeeze uninsured patients until they have no assets left.

In nonprofit hospitals, where top executives often are paid lavish compensation of $1 million or more, Brill documents how patients are gouged, charged hundreds of dollars for X-rays and other services that Medicare would have reimbursed at little more than $20. In one typical case, a dose of life-saving cancer medicine, already expensive at $4,000, was marked up by the hospital to $13,700 — with no explanation given.

What's wrong with health care in the United States? This is. Why aren't medical ethicists, the conscience of the profession, all over this?

For people with health insurance coverage, insurers will negotiate the obscene prices down. But it's not enough. The bargaining leverage of insurers is often less than that of dominant (and consolidating) hospitals, which allows the system to wildly overcharge. We overspend on health care by $750 billion a year, Brill asserts, more than the gross domestic product of oil-rich Saudi Arabia.

When people level criticism at the Affordable Care Act for not doing enough to rein in health care costs, this is what they're talking about. But Brill's discussion of possible solutions falls short. He rejects the most cost-effective and efficient approach, a single-payer or Medicare-for-all type system with reasonable price controls. He says this type of solution would result in lower incomes for many health care providers and would allow government to gain more control over the health sector. (And what's wrong with that exactly?)

Instead, Brill calls for a hodgepodge of policy changes that, to my mind, offer varying degrees of sense and possibility. One of his less workable suggestions is for a tax rate of 75 percent on all hospital profits and on salaries of hospital administrators over $750,000. Targeted taxation of that kind is infeasible.

On the other hand, Brill's call for real transparency in medical billing is an essential consumer protection reform. And, as Brill suggests, we need to put limits on pharmaceutical pricing to bring down U.S. drug charges in line with other developed countries. That reform alone would save Medicare $25 billion a year.

For even better ideas, read Princeton economics professor Uwe Reinhardt's blog at NYTimes.com. An expert in the funding of health care systems, Reinhardt says that our problem is that we allow the free market to determine prices for an essential service in a seller's market. This has led to exploding costs (we pay double or more of what other developed countries do for the same health care goods and services) and rampant price discrimination. The uninsured, who are powerless to negotiate a better deal, can pay 10 times more for the exact same services.

Reinhardt suggests we adopt a system called "price-setting in quasi-markets," similar to what exists in Germany and Switzerland. States or regions would negotiate fee schedules with associations of hospitals, doctors and other health care providers. Those fees could be structured as fee-for-service or bundled payments, and would be uniform for all payers. Maryland already does this for hospitals. It also sharply reduce administrative billing costs.

Brill has helped re-open this conversation. It's a reminder that, even with health care reform coming into full effect next year, an overhaul of medical pricing remains one of America's most pressing issues.